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Essentials Of Investments
Found in: Page 588
Essentials Of Investments

Essentials Of Investments

Book edition 9th
Author(s) Zvi Bodie, Alex Kane, Alan Marcus, Alan J. Marcus
Pages 748 pages
ISBN 9780078034695

Short Answer

The current level of the S&P 500 is 1,200. The dividend yield on the S&P 500 is 2%. The risk-free interest rate is 1%. What should a futures contract with a one-year maturity be selling for?



See the step by step solution

Step by Step Solution

Step 1: Given Value

Current Price (S0) = $1,200

Risk-free rate () = 1%

Dividend yield (D) =2%

Time (T) = 1 Year

Step 2: Calculation of future’s contract with one year maturity

Future’s price = (1 + – D)T

= $1,200 x (1 + 0.01 – 0.02)1

= $1,188

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